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Setting the stage for a political fight over a huge federal fraud suit, a San Francisco Board of Supervisors committee on Wednesday recommended spending $2.5 million to litigate allegations that a giant California contractor defrauded the city out of tens of millions of dollars. The deal would ensure funding for the suit despite the mayor’s hostility and the reservations of the San Francisco International Airport — the very agency that City Attorney Dennis Herrera says was cheated by Sylmar’s Tutor-Saliba Corp. Into this political brouhaha steps San Francisco’s Farella Braun & Martel, which agreed to slash its hourly rates in exchange for a share of any recovery. The hybrid contingency arrangement, where the firm has agreed to assume some of the risk of bringing the case, may also help Herrera in his attempts to keep the suit alive. Calling it a “strong case,” Herrera reminded the finance committee that when the suit was presented to the Board of Supervisors prior to being filed in November, “not one member of the board raised any reservation about pursuing this action.” When asked if the confidence expressed through the fee agreement by the outside lawyers would help with the politics around City Hall, Herrera stressed his office’s own ability to analyze a case. But, he added, the firm’s intrinsic support certainly doesn’t hurt. Supervisor Aaron Peskin, chair of the finance committee, also endorsed the idea that the agreement was evidence of the suit’s strength. The full board has final say on whether the money is spent. “It’s not lost on the city attorney, it’s not lost on the legal community, it’s not lost on the Board of Supervisors. But it appears that it’s lost on the mayor and his cronies at the airport,” Peskin said after the hearing. When told that the city was going forward with $2.5 million to fund the suit during the next fiscal year, Tutor-Saliba President Ronald Tutor said, “Whatever.” Asked to respond to the specifics of the allegations, Tutor declined. “I’ve already responded enough times to enough people over the years. It’s the same old story.” Indeed, that is precisely part of Herrera’s pitch in getting the city to fund the suit. During the hearing, Chief Deputy City Attorney Therese Stewart pointed to the city of Los Angeles’ successful multimillion dollar suit against the company, which contained similar allegations. Herrera’s allegations follow two tracks: one, that Tutor-Saliba set up fraudulent companies to win contracts under the city’s Minority Business Enterprise program; and two, that it submitted fraudulent cost overruns that cost the city millions. But Stewart warned that, based on past courtroom tactics by Tutor-Saliba, the suit was likely to be expensive. P.J. Johnston, a spokesman for Mayor Willie Brown, said it’s not the mayor’s case to fight but that he does agree with the airport’s questions about the case. He also suggested that a law firm could take the case on a pure contingency basis — something Stewart disputes — but said he had not seen details of the recent agreement with Farella. Wednesday’s hearing became somewhat heated. When an airport representative asked that a vote on the matter be delayed because airport officials had a problem “with what’s been presented with the fraud and some of the specifics,” Peskin ratcheted up the tension in the room. The airport’s hesitation, Peskin said, is “deeply troubling to me.” He also said that recent published comments from one airport commissioner critical of the suit “appear to me as bordering on obstruction of justice.” Johnston said Peskin was off base. “For Supervisor Peskin it appears to be yet another personal battle, and for the city attorney, one can only speculate as to what’s important to him,” he said. Peskin and Brown have clashed in the past, most recently during a reported shouting match on the steps of City Hall. Peskin later filed a police report claiming the mayor had threatened him. Peskin proposes taking the money from an airport operating fund. Four of the five members of the S.F. Airport Commission were appointed by Brown. In essence, said Johnston, Herrera is pursuing a suit about which his client — SFO — has serious reservations. “It’s one of those situations where the client is saying something different from the lawyer who is bringing the case,” Johnston said. Airport officials have been saying that Herrera hasn’t shown them the evidence to support the cost overrun claims, which Herrera disputed Wednesday. “We’ve shown the evidence” in closed sessions, Herrera said. Tutor-Saliba signed $600 million in airport contracts with the city, but went over budget by 58 percent, according to Herrera. The city is seeking more than $30 million plus punitive damages. Under terms of the fee agreement, success in the suit would lead to a significant payday for Farella. If the city recovers more than $3.6 million, the firm will rake in 30 percent of the total — once hourly rates and expenses billed by the city and the firm are deducted. Farella lawyers will work at a steeply discounted rate. The two partners chiefly assigned to the case, Douglas Young and Alan Harris, will bill $180 an hour. The team that the city hired includes Young, a well-established litigator in the federal courts who has represented public entities in the past, notably the state’s universities in a dispute with power companies during the power crisis; Harris, former chair of the firm’s executive committee and a nationally renowned expert in construction litigation; and Stephanie Skaff, an intellectual property litigator with an accounting degree who was elevated to partner just days after the city filed suit. The suit is City and County of San Francisco v. Tutor-Saliba Corp., 02-5286.

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